AMP’s first quarter update showed signs of a turnaround in its troubled life insurance business but super regulation changes caused massive outflows in its wealth management business. Australian wealth protection annual premium in-force was $1.94 billion, for the three months to March, down just 1 per cent on the 2016 fourth quarter.
AMP chief executive Craig Meller (pictured) said life insurance claims and policy lapses were positive and performing “in line with revised assumptions”.
“First quarter claims and lapse experience in Australian wealth protection indicate that the measures we’ve taken to stabilise the performance of the business are working," he said.
This is good news for AMP which suffered a huge blow-out in claims and an increase in lapsed policies last year, which led to a horrible result with the life insurance division sustaining a $415 million loss. This prompted the financial services giant to de-risk its life operation by signing a reinsurance deal with Munich Re for half the book.
“This is the second consecutive quarter AMP has delivered a positive life experience,” noted Morgan Stanley’s Daniel Toohey.
However, AMP is losing the battle on flows. While activity levels have increased with stronger inflows, outflows were also elevated. This is disappointing since high outflows and falling reported planner numbers last year also called the resilience of AMP's wealth franchise into question.
Uncertainty in the tax treatment of super, more regulation and volatile markets all led to the financial services giant posting a 57 per cent drop in full year underlying earnings for 2016 to $486 million. Earnings for the wealth management business dipped 2.2 per cent to $401 million.
Analysts were expecting an improvement this quarter because of stronger markets and tax clarity. Yet their optimism has proven to be premature.
Industry consolidation saw record net outflows of nearly $200 million for the first quarter. While inflows were up 11 per cent year-on-year, to $6.4 billion, a 19 per cent rise in outflows resulted in net outflows for the quarter of $199 million.
“Cashflows reflect an extraordinarily high level of activity across Australia’s superannuation industry as customers transitioned to MySuper prior to 1 July 2017, consolidate their funds and allocate more investments to SMSFs, amid a changing regulatory environment,” Meller said.
On a positive note, Meller claimed flows have been strong since the beginning of the second quarter as the July 1, 2017 due date for super reforms comes closer.
Strong second quarter?
While overall wealth suffered with net outflows, AMP’s retail platforms were solid, with net inflows of $188 million, with the Group’s main platform North logging a 27 per cent rise in cashflows year-on-year.
“As AMP transitions default customers under MySuper ahead of the 1 July deadline, they are struggling to retain business, with Industry Fund consolidation campaigns the likely beneficiary,” noted Toohey.
“Further, AMP cites increased SMSF outflows (largely not captured by AMP SMSF), in part due to growing preference for residential property investment. On the positive, with MySuper transition completed in April, net flows are positive year to date. However, with the second quarter $450 million signature super mandate win, they should be.”
Still Toohey is predicting a strong second quarter for flows supported by the transition to the revised $100,000 non-concessional contribution cap providing a one-off opportunity to invest up to $540,000 by 1 July and the Western Australia's Water Corporation Superannuation Plan mandate delivering inflows of $450 million.
AMP Capital recorded net external cashflows of $228 million for the March quarter driven by strong cashflows from China Life AMP Asset Management. Internal cashflows were impacted by outflows from default super funds sourced via Australian wealth management.
AMP Bank's mortgage book increased to $17.9 billion, from $17.1 billion at in the 2016 December quarter.The deposit book increased by 5 per cent to $617 million for the same period.